A Primer On The 25C Tax Credit

By Charlie McCrudden | January 3, 2013  |

 The retroactive reinstatement of the 25C residential energy tax credits for 2012 have a lot of homeowners and contractors trying to remember the details of this federal incentive that last expired on December 31, 2011.

An eligible taxpayer (homeowner) may claim a tax credit for up 10% (up to $500) of installed costs of  a variety of qualified energy efficient retrofit improvements to the HVAC system, insulation, roof, windows, and doors, or hot water equipment of their primary residence. While the total amount a homeowner may claim for all qualified retrofit measures is $500, the amount a homeowner may claim for each type of retrofit measure or equipment installed is subject to individual caps. See below for details.

HVAC Equipment Details

Depending on their individual tax situation and eligibility, a homeowner may qualify for tax credits equal to 10% of the costs (up to a $300 limit) for installing a high efficiency central air conditioner, heat pump, or hot water heater.

A homeowner may also qualify for tax credits equal to 10% of the costs (up to $150 limit) for installing a qualified furnace or hot water boiler. A smaller tax credit of 10% of the installed costs (up to $50 limit) is available for installing a system with an advanced main air circulating fan.

What Is Considered a High Efficiency Unit?

A split system central air conditioner must meet or exceed 16 SEER and 13 EER; package system central air conditioners must meet or exceed 14 SEER and 12 EER.

An air source heat pump must meet or exceed 15 SEER and 12.5 EER and 8.5 HSPF, in order to qualify for the tax credit. Package heat pump systems must meet or exceed 14 SEER and 12 SEER and 8 HSPF.

Natural gas furnaces, propane furnaces, natural gas hot water boilers, propane hot water boilers, oil furnaces, and oil hot water boilers all must meet or exceed 95% AFUE.

For the advanced main air circulating fan credit, the fan must use no more than 2% of the furnace’s total energy. If the fan is qualified, but the furnace is not, the rules will not allow the taxpayer to take 10% off the cost of the entire furnace.

There is a lifetime residential energy tax credit limit set at $500, going back to January 1, 2005.

The IRS will soon release information instructing taxpayers on how to file a claim. Assuming the requirements are similar to the past, taxpayers will need to file a Form 5695 when they submit their tax forms, as well as keep a copy of the Manufacturer’s Certification Statement with their records. The AHRI directory will soon be updated so that homeowners or contractors can print certificates attesting that equipment qualifies for the tax credit.

Click here for more information about the fiscal cliff package that reinstated the 25C tax credit and its impact on HVACR contractors.

Charlie McCrudden is ACCA Vice President for Government Relations.